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How to Register for PAYE in Kenya: A Step-by-Step Guide

January 28, 2025

Introduction

In Kenya, Pay As You Earn (PAYE) is a key taxation system that ensures the efficient collection of income tax from employees. As an employer, registering for PAYE is both a legal obligation and a practical step toward fostering tax compliance within your organization. The Kenya Revenue Authority (KRA) oversees PAYE, providing tools like the iTax portal to facilitate registration and filing.

This comprehensive guide will cover everything you need to know about PAYE registration in Kenya, from understanding its importance to a step-by-step breakdown of the process, compliance obligations, and common challenges.

Understanding PAYE in Kenya

What is PAYE?

PAYE, or Pay As You Earn, is a system where employers deduct income tax from employees' earnings and remit it to the KRA. The deducted amount depends on an employee's income and applicable tax bands. It simplifies tax compliance for employees, as their tax obligations are met at the source.

Why is PAYE Important?

PAYE is essential for several reasons:

  • Legal Compliance: Employers are legally mandated to deduct and remit PAYE for employees earning above a certain threshold.
  • Streamlined Tax Collection: It ensures consistent and timely revenue collection for the government.
  • Employee Convenience: Employees benefit from having their taxes automatically deducted, eliminating the need for manual payments.

Legal Framework Governing PAYE

Overview of PAYE Regulations

The Income Tax Act of Kenya governs PAYE, outlining the obligations of employers and employees regarding income tax deductions. The KRA monitors compliance, conducts audits, and imposes penalties for violations.

Role of KRA in PAYE Compliance

The KRA plays a pivotal role in ensuring PAYE compliance through:

  • Registration of employers for PAYE.
  • Provision of the iTax platform for easy filing and payment.
  • Auditing businesses to verify compliance.

Who Needs to Register for PAYE?

Mandatory Registration for Employers

Employers must register for PAYE if they have employees earning above the taxable income threshold. This applies to:

  • Sole proprietors
  • Partnerships
  • Corporations

PAYE is applicable for various forms of compensation, including:

  • Salaries and wages
  • Bonuses and commissions
  • Allowances and benefits-in-kind

Exceptions and Exemptions

Certain categories of employees, such as those earning below the taxable threshold, may be exempt from PAYE. However, employers must still register and file NIL returns for such cases.

Prerequisites for PAYE Registration

Before starting the PAYE registration process, ensure you have the following:

1. Valid KRA PIN for Employer:

  • The KRA PIN is a mandatory identifier for all tax-related activities in Kenya.
  • Employers must have an active PIN to access the iTax portal.

2. Business Registration Details:

  • Certificate of Incorporation or Business Registration Certificate.
  • Articles of Association (for limited companies).

3. Employee Information and Tax PINs:

  • Ensure that all employees have valid KRA PINs.

4. Contact Information:

  • A valid email address and phone number for business correspondence.

5. Bank Account Information:

  • Details of the business bank account for processing tax refunds and other transactions.

Below is a comprehensive step-by-step guide on how to register for PAYE in Kenya:

1. Obtain a KRA PIN

Before registering for PAYE, your business must have a KRA Personal Identification Number (PIN). This is mandatory for all tax-related transactions in Kenya. If your business does not have a KRA PIN, follow these steps:

  • Visit the iTax Portal: Go to https://itax.kra.go.ke.
  • Select 'New PIN Registration': Choose 'Non-Individual' for businesses and select 'Online Form' as the mode of registration.
  • Fill in Basic Information: Provide the required details about your business, including registration details and physical address.
  • Select Tax Obligations: Check the relevant boxes for tax obligations your business will be responsible for, such as Income Tax, VAT, and PAYE.
  • Enter Directors' Details: Input information about the company directors or partners.
  • Submit the Application: Complete the form, solve the arithmetic sum provided, and submit your application.

Upon successful registration, you will receive a KRA PIN certificate.

2. Register for PAYE Obligation

Once you have a KRA PIN, you need to add PAYE as a tax obligation to your profile. Here's how:

  • Log in to iTax: Access your account at https://itax.kra.go.ke using your KRA PIN and password.
  • Navigate to 'Registration': On the dashboard, click on the 'Registration' menu and select 'Amend PIN Details'.
  • Add PAYE Obligation: In the tax obligations section, check the box for 'Income Tax - PAYE'.
  • Submit the Amendment: Complete any additional required information and submit the form.

The KRA will process your request, and upon approval, PAYE will be added to your tax obligations.

3. Filing PAYE Returns

As an employer, you are required to file PAYE returns monthly. The process is as follows:

  • Compile Employee Tax Data: At the end of each month, prepare a list of all employees from whom tax has been deducted.
  • Log in to iTax: Access your account at https://itax.kra.go.ke.
  • Navigate to 'Returns': Click on the 'Returns' tab and select 'File Return'.
  • Select PAYE Return: Choose 'Income Tax - PAYE' as the tax obligation and proceed.
  • Download the PAYE Excel Form: Fill in the required details, including employee earnings and deductions.
  • Validate and Upload: After completing the form, validate it to generate a zipped file. Upload this file on the iTax portal.
  • Submit the Return: Agree to the terms and conditions and submit the return.

You will receive an acknowledgment receipt upon successful filing.

4. PAYE Payment

After filing the return, you need to remit the deducted taxes to the KRA. Follow these steps:

  • Generate a Payment Slip: On iTax, go to the 'Payments' tab and select 'Payment Registration'.
  • Select Tax Details: Choose 'Income Tax' as the tax head and 'Income Tax - PAYE' as the subhead.
  • Enter Payment Information: Provide the tax period and the amount due.
  • Choose Payment Mode: Options include bank payment, M-PESA, or debit/credit card.
  • Submit and Download Payment Slip: After submission, download the payment slip generated by the system.
  • Make the Payment: Use the payment slip to pay through your chosen method.

Ensure that payments are made by the 9th of the following month to avoid penalties.

5. Penalties for Non-Compliance

Failure to comply with PAYE regulations can result in penalties:

  • Late Filing: The higher of 25% of the tax due or KShs. 10,000.
  • Late Payment: Penalty of 5% of the tax due and interest of 1% per month on the unpaid tax until fully paid.
  • Failure to Deduct and Account for Tax: Penalty of 25% of the tax involved or KShs. 10,000, whichever is higher.

Adhering to the stipulated deadlines and requirements is essential to avoid these penalties.

By following these steps, you can successfully register for PAYE in Kenya and ensure compliance with the KRA regulations.

Obligations After PAYE Registration

Monthly PAYE Filing and Payment:

  • PAYE must be filed and remitted by the 9th of each month.
  • Late payments attract penalties and interest.

Record-Keeping Requirements:

  • Employers must maintain records of employee earnings and tax deductions for at least five years.

Issuance of PAYE Certificates (P9 Forms):

  • Provide employees with P9 forms at the end of the financial year to facilitate annual tax returns.

How PAYE is Calculated in Kenya

PAYE Rates and Tax Bands

PAYE is calculated using progressive tax rates. The rates increase as income rises, with tax reliefs like the personal relief applied to reduce taxable income.

Reliefs and Deductions

Employers must consider allowable deductions, such as:

  • Personal relief.
  • Insurance relief.
  • Contributions to approved retirement schemes.

Common Challenges in PAYE Registration

  • Incomplete Documentation: Missing key documents can delay registration.
  • Lack of Employee PINs: Employers often face challenges obtaining KRA PINs for employees.
  • Errors in Filing Returns: Mistakes in PAYE submissions can result in penalties.

 

 

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Information provided on the site is merely guidance that may change in line with Kenya law and regulations. Users must not consider this to be financial advice or their sole resource when making any financial decision. Spondoo & Spondoo.ke is a trading name of Accounting SQL Limited, authorised & license accounting firm in the United Kingdom. This trading name is licensed to Spondoo Advisers Limited, an authorised & licensed accounting firm in the Republic of Kenya.
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